Term
| 1. If a policy offers pure death protection, what does this mean? What does this reveal about the cash value of the policy? |
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Definition
| Pure death protection is a type of insurance whereby premiums are paid for protection in the event of death, not for cash accumulation. There is no cash value associated with this type of policy. |
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Term
| 2. With annually renewable term insurance what happens to the premium as one's age increases? |
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Definition
| The premium increases each year with the age of the insured. |
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Term
| 3. Describe Annually Renewable Term Insurance. |
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Definition
| Annually Renewable Term policies provide a level death benefit for a term of one year; however, upon each renewal, the premium increases each year with the age of the insured. The insured qualifies for the coverage at the time of the application and is able to renew coverage every year thereafter (usually up to a maximum age) simply by paying the increased annual premium. In other words, with annually renewable term coverage the insured does not have to prove insurability, he or she simply has to pay the higher renewal premium. |
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Term
| 4. How does continuously premium straight life differ from 20-year limited pay life? |
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Definition
| Continuously premium straight life policies are designed so that the premiums for coverage will be completely paid for by the insured's age of 100; however, 20-year limited pay life policies are designed so that the premiums for coverage will be completely paid for in 20 years. The premiums for premium straight life will be lower since the total cost of the policy is spread over the insured's lifetime, and the premiums for 20-year limited pay life will be higher since the premium-paying period is condensed to a shorter a shorter duration of 20 years. Also, the 20-year policy will accumulate cash value more rapidly than the continuously premium straight life policy because of the greater amount of premium paid early. |
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Term
| 5. Does the death benefit of an Adjustable Life policy automatically increase with inflation? |
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Definition
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Term
| 6. Universal Life has two interest rates. What are they, and how do they work together? |
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Definition
| The two interest rates for universal life policies are the guaranteed contract rate and the non-guaranteed current rate. The insurer credits the cash value in the policy with the non-guaranteed current interest rate and backs the cash value with the guaranteed contract interest rate. The guaranteed interest rate on most universal life policies varies from 3% to 5.5% depending on the insurer, and is the minimum interest rate the insurer will pay. The current rate is usually based on current market conditions and this is the amount that will be credited to the policy if it exceeds the contract rate. Some insurers tie their current interest rates to Treasury Bills, while others maintain a specified spread (profit margin) between the interest that they credit on their in-force policies and the interest that they are earning on their own investment portfolio. Some insurers have their current interest rate declared by the company's board of directors each year, if not more frequently. |
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Term
| 7. What are the death benefit options in universal life policies? |
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Definition
| Universal life policies offer two options. Option A is the level death benefit option, and Option B is the increasing death benefit option. |
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Term
| 8. If one doesn't accept group term insurance during the initial open enrollment period, what will the insurance company try to avoid by asking medical questions? |
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Definition
| Adverse selection, which is "the tendency of risks with higher probability of loss to purchase and maintain insurance more often than the risks who present lower probability." |
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Term
| 9. Who owns a group life contract? Who are the parties to the contract? What does the insured receive? |
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Definition
| The sponsor of the group owns the group life contract. Usually, the parties of the contract are employees. The insured parties receive certificates of insurance to evidence that they have coverage. |
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Term
| 10. What type of insurance is group life insurance? |
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Definition
| Group life insurance is usually written for employer-employee groups and is usually written as an annually renewable term policy. |
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Term
| 11. What are some of the group characteristics important for underwriting? |
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Definition
1. Purpose of the Group-The group must be created for a purpose other than to obtain group insurance.
2. Size of the Group-The larger the number of people in the group, the more accurate the projections of future loss experience will be. This is based on the Law of Large Numbers of similar risks.
3. Turnover of the Group-The underwriter wants a group that has a steady turnover of new employees for older employees. Younger, lower-risk employees will enter the group as older, higher-risk employees leave.
4. Financial Strength of the Group-Because group insurance is costly to administer, the underwriter should consider whether or not the group has the financial resources to pay the policy premiums, and whether or not it will be able to renew the coverage. |
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Term
| 12. What is the key feature of converting group term to Whole Life Insurance? What is consistent and what changes, face amount or premium? |
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Definition
| The conversion privilege. If an employee terminates membership in the insured group, the employee has the right to convert to an individual whole life policy without proving insurability at a standard rate, based on the individual's attained age. The face amount or death benefit will be equal to the group term face amount but the premium will be higher. The employee usually has a period of 31 days after terminating from the group in order to exercise the conversion option. During this time, the employee is still covered under the original group policy. |
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Term
| 13. Name some similarities and differences between universal life and variable life policies. |
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Definition
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